COVID-19 Impact on Golf & Resorts

1. What’s going on, in general, in the golf & resorts asset class as a result of COVID-19?

The resort and golf segment has been a relatively strong service over the past 10 years. If the ‘lock down’ stays within 30-60 days, we believe the golf and resort industry should “weather the storm” for the following reasons:

GOLF:

The nature of the sport lends well to a time like this in the interest of practicing social distancing and the health benefits outdoor exercise brings. In general, states and municipalities are allowing golf courses to remain open with recommended guidelines such as take-out food & beverage only, online check-ins, one person per cart or walking only, no flag sticks, elevated cups liners to prevent balls from going in the hole, etc. If the business adjustments/closures are more short-term, you also won’t see courses in the northern part of the U.S. affected as much since many won’t get busy until after Memorial Day.

RESORTS:

Similar to golf, many people are looking at resorts, especially in the more remote locations, as an escape and continue to book, although overall bookings are generally down due to travel restrictions. Like golf, resorts in the northern half of the country typically see their strongest months beginning in June, so if the virus precautions are more short-term, there may not be significant financial damage. As of today, customers are optimistic that COVID-19 cases will be on the downward trend come June, for the most part. With basic social distancing measures in place, resorts and customers will adapt. Additionally, resorts and golf courses that rely on heavy corporate and event activity are seeing nearly 100% cancellations over the next 60 days which is impacting their businesses immensely. Even though the remote resorts offer great opportunities for social distancing, the health system infrastructure just can’t handle any sort of volume in the event of a virus spread.

From a brokerage standpoint, we are seeing a mix of reactions. Most of our deals that are under contract and scheduled to close in the next 30-60 days have been pushed out for an additional 30-60 days. Deal and loan terms are being renegotiated with terms that allow for more time, debt-service reserve accounts, lower leverage, and price reductions. Deals that were at LOI stage have almost all been put on hold.
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2. What immediate challenges are golf & resorts experiencing due to COVID-19?

The largest short-term challenge is around the uncertainty of closures. Lodging is the largest revenue stream at most resorts and many resorts are located in remote areas and with cabins that are conducive to social distancing, however many counties are now requiring all lodging operations to close for 30-60 days.

The next 30-60 days are generally the slowest time of the year for resorts so as long as state and municipality level restrictions ease by the end of that period, the resorts should be fine. Although the travel restrictions are affecting the larger vacation areas significantly more (think Disney World), the local/regional options may see a boost. As much as remote resorts may be tempting for some, these resorts may also see a decline in traffic due to fear of lack of health care in smaller towns.
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3. What long-term challenges do you see golf & resorts experiencing due to COVID-19?

If the restrictions from the COVID-19 extend longer-term and if the economy goes into a long recession, we predict a reduction in world-wide leisure spending. People may not spend money flying to Europe or other exotic destinations, but they will still drive to the fantastic resort communities throughout the country.
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4. What short-term opportunities are golf & resorts experiencing due to COVID-19?

Opportunities for golf and resorts in the short-term come from promoting the ability to achieve social distancing and supporting mental and physical health. Although spring break destinations and corporate event centers are experiencing a hit right now, many customers are still optimistic for summer vacations and if the restrictions are short-term, they should bounce back strong.

Buyers will also have more time to explore opportunities right now and may look to hospitality, especially golf and resort, when things dip as these assets tend to have higher returns than traditional commercial real estate. We have experienced an influx of buyers in recent years that have no prior history in golf and resorts and we expect that to continue to grow. Sellers may also be more flexible during times like these to get deals done due to the huge amount of uncertainty that the future holds, and the fact that they don’t want to risk having to hold for another 10 years. Enhanced SBA programs will also promote purchasing in the near term.

In addition, a number of our clients are actually starting to plan for improvements and additional development. The cost of capital is low right now, and it has been nearly impossible to find affordable contractors over the last five years. They believe now is the time to lock up capital at historically low rates, and start building for the next cycle. It is also easier to execute these improvements due to very low occupancy rates.
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5. What long-term opportunities do you see golf & resorts experiencing due to COVID-19?

For the golf and resort industry in general, this experience may lead to a renewed/invigorated appreciation of nature combined with the desire to escape from busy, city life. We see the industry bouncing back strong, as it did from 2008. As an office specializing in this asset class, we had some of our best years coming out of 2008 from a brokerage standpoint. As in the short-term, buyers will be looking to invest in hospitality for the returns over the long-term. We will also see a significant amount of work from lenders looking to dispose of failing assets from their portfolios. The amount of buyers that are new to the industry will continue to grow, especially as they see stronger opportunities in an economic downturn.